NVIDIA to acquire iPod chipmaker PortalPlayer

NVIDIA Corporation said Monday it has signed a definitive agreement to acquire iPod chipmaker PortalPlayer, Inc. in a cash for stock transaction.

Under terms of the agreement, which have been approved by the Board of Directors of each company, the Santa Clara, Calif.-based graphics technologies developer will pay $13.50 in cash for each outstanding share of PortalPlayer common stock.

The deal represents a total purchase price of approximately $357 million, or approximately $161 million net of cash on PortalPlayer's balance sheet as of September 30, 2006.

PortalPlayer, which was founded in 1999, is widely recognized for its high-performance system-on-chip (SoC) technology that power some of the world's most recognizable portable digital music players, including Apple Computer's iPods.

Interestingly, it has been reported that NVIDIA will succeed Broadcom as the graphics chip supplier for Apple's next-generation video iPod players, which are widely rumored to sport improved video capabilities, larger display screens and a new touch interface.

"Based on our analysis, we believe Nvidia is designed into the next-generation video iPod socket at the expense of Broadcom," American Technology Research analyst Satya Chillara told clients in a research note released this July.

"We believe the Nvidia chip adds 3D graphics functionality in addition to all of the existing features that Broadcom supported with the existing video iPod," Chillara added.

In its announcement on Monday, NVIDIA said it expects the acquisition of PortalPlayer to accelerate its ongoing investment in its handheld product strategy.

"Modern mobile devices are miniaturized yet powerful multimedia computers. At the core of their architectures are complex Application Processors integrating microprocessors, system logic, networking, and multimedia processors," said NVIDIA chief executive Jen-Hsun Huang. "With the products created through this combination, we intend to drive the next digital revolution, where the mobile device becomes our most personal computer."

NVIDIA's $357 million purchase price represents approximately a 19 percent premium to the 20-day average closing price of PortalPlayer through Friday, November 3, 2006. The deal is still subject to regulatory approvals and other customary closing conditions.

I'm pretty certain Apple doesn't want to get into that end of the business. They are primarily software+hardware integration (although they say they are "systems designers").

You don't buy a company like PortalPlayer for its intellectual property, you buy it for its chip business.

Apple probably reviewed their patent portfolio and concluded that they didn't have anything so unique or valuable that it warranted a buyout. Apple's IP is more focused in software and UI as opposed to chip designs.

NVIDIA on the other hand is looking to grow it's chip business and would love to get it's foot in the door with the iPod as well as expand its offerings to potential customers.